INVC NEWS
Mumbai : If you are an investor, you must be familiar with the terms like fixed deposits and stocks. To diversify your investment portfolio, FDs are equally as important as stocks. While both are standard investment tools, you must choose the best option for high and secure returns. The choice depends on factors like your risk appetite, investment goals, and principal amount.
Stocks are popular for the high returns it offers but always has the threat of capital loss since they are a comparatively high-risk investment. In the case of fixed deposits, they offer guaranteed returns over a while, while keeping the investments safe and secure. Before zeroing down on an investment decision, here are the advantages and disadvantages of FDs and stocks for you to understand which is a better investment option.
Advantages of Investing in Fixed Deposits
Here are some of the main benefits of saving in fixed deposits in India.
- Safer Option: The element of risk associated with FDs is very low compared to other investments. It is because FDs are not market-linked and are not affected by market fluctuations. FDs offer stability and steady growth of your money.
- Guaranteed Returns: Fixed deposits offer a reasonable interest rate of 5 – 7% for the duration of your investment. You can withdraw the amount monthly, quarterly, half-yearly, or on a yearly basis. Thus, a guaranteed amount will be provided to you as a periodic income.
- Easy Liquidity: Fixed deposits are considered liquid assets and can be used immediately after the withdrawal. The amount can be transferred from one financial institution to another without any restriction. This feature helps in using the FD when you are in urgent need of money.
- Use as Collaterals: FDs in a financial institution can act as collaterals. You can take a loan against FDs or credit cards against FDs. It acts like a surety in the case of fund repayments.
Advantages of Investing in Stocks
Take a look at the advantages of investing in stocks in India.
- Easy to Invest: With the advent of digital platforms and the latest technologies at your fingertips, it is easy to invest in stocks now. You can complete the onboarding process in a few minutes and submit your KYC documents from the comfort of your home.
- Protection Against Inflation: To win the race against inflation, you must invest in avenues that create wealth by beating inflation. Your investment returns should be higher than the inflation rate, else, your returns will eventually die down to zero or minimal. Investing in stocks can get you high returns even in inflation if invested wisely and can help you grow a corpus in no time.
- Increasing Returns: While traditional investment options like fixed deposits provide safer and fixed returns, investment options like stocks are market-aligned and offer double-digit returns on their good days. It is ideal to diversify your investment portfolio by dividing some of your assets into accelerated wealth-creating instruments like stocks.
- Make Small Investments: No massive amounts are required to begin an investment in stocks. You can use small amounts to buy mutual funds and SIPs and start investing in stocks. You need a minimum of ₹5,000 to open an FD in India, whereas you can buy a share for under ₹100 in India.
Disadvantages of FD Investments
As you know, everything has its pros and cons. Let us check out some of the demerits of FD investments here.
- Premature Withdrawal Charges: When you invest in an FD, you agree to keep the principal amount locked up for a fixed period. If an emergency arises and you need to liquidate the fixed deposit early, you may have to pay a certain fixed amount as the premature withdrawal charges. In some instances, you may lose a significant portion of the interest amount accumulated. These charges vary from lender to lender.
- Low Returns: Though FDs offer guaranteed returns, they are low in comparison to other market-linked investments in India. Also, the returns from FD are taxable, which reduces the total amount you receive.
Disadvantages of Investing in Stocks
Now, let us take a look at the disadvantages of investing in stocks.
- Riskier Investment: Unlike FDs, stocks offer no guaranteed returns to the investor. The high volatile nature of the stocks makes them riskier, and in the event of corporate bankruptcy, the company’s creditors will be repaid with high priority rather than the small investor.
- Advance Research Necessary: If you are investing in stocks, it is essential that you conduct thorough research on each company to evaluate and analyse how much profit you can make before you buy its stock. You must keep an eye on the company’s latest developments in the news and learn to understand annual reports and financial statements. You should monitor the stock market and follow the latest trends since everything is unpredictable and even the best company’s price can fall low.
What is the Best Investment Option – FDs or Stocks?
The stock market can be attractive and rewarding in the form of high returns, please note that you may have to pay the price for that in the form of its high volatility. If you are looking for a safe, hassle-free, long-term investment option, you can go for fixed deposits. It offers a higher return on investment rates than a savings account and even provides deposit insurance in case of the financial institution’s collapse.
Conclusion
All you have to do is know yourself and understand what kind of investor you are. Are you a risk taker or a safe player? Research the investment options well, make a decision that will help you park your money in a safe place, and start reaping returns!
